The CME/NYMEX Henry Hub prompt natural gas futures contract last week settled at $3.213/MMBtu, the highest daily settlement since late May 2017. Despite natural gas production climbing nearly 3.0 Bcf/d over the past couple of months to record highs, the U.S. gas supply and demand balance has tightened considerably in recent weeks, particularly relative to last year at this time. Moreover, U.S. gas storage inventory has remained below year-ago levels and also moved below the five-year average level in recent weeks. That’s because gas demand has managed to more than offset the incremental supply in the market. How did that happen and what can it tell us about what to expect this winter? Today, we analyze recent shifts in gas market fundamentals.

When we last checked in on the gas market a few months ago, in Summertime Blues, the market balance heading into the fall was looking increasingly bearish relative to last year, as summarized in Figure 1 below using monthly average supply and demand volumes from RBN’s NATGAS Billboard report. Until September, gas supply this year had been mostly lagging well behind 2016 and was averaging 1.0 Bcf/d lower year-on-year. From April through August, production was averaging down 0.4 Bcf/d, and imports from Canada also were lower, by another 0.6 Bcf/d, while receipts from LNG imports were flat. Despite the lower supply, however, the market was long gas by more than 1.0 Bcf/d compared to the same period in 2016. That’s because relatively milder weather and higher gas prices (versus last year) were doing a number on demand.

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